Women face £30k less in pension pots than men as their retirement savings fall even further behind

The scale of the retirement crisis
faced by women is laid bare by a report showing a 30-year-old female will end
up with almost £30,000 less in her pension pot than a man when they reach 65.

The gap between what men and women
are saving for old age has widened by 10 per cent over the past year as
women are hit harder by the economic downturn, according to a report by
pension giant Scottish Widows.

It also found one in four women were not putting any money into a pension, compared with a fifth of men.

Financial advice: One in four women are not putting any money into a pension scheme

Women traditionally find it harder than men to save for the long term because they are more likely to work part-time or have a full-time caring role for children or relatives.

But they are also prioritising living expenses and paying down debt over saving for retirement in the current tough economic climate, the poll of more than 5,200 adults showed.

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It revealed that women are also more likely to 'save for a rainy day' rather than for retirement - meaning they regard savings as a pot to dip into to cover unexpected costs not as a fund to be ring-fenced and protected for the future.

One bright spot was that women who are already saving into a pension were reluctant to cut contributions.

FAILING TO SAVE FOR RETIREMENT (%)

Source: Scottish Widows

Men

Women

2012

19

26

2011

17

23

2010

19

25

2009

15

26

Faced with a 10 per cent fall in income, most would cut spending on food, clothing and going out first, and only 3 per cent would cut their pension contributions, the survey found.

Lynn Graves, head of business development at Scottish Widows, said: 'The recession has had a major impact on people’s attitudes to managing their finances, as the messages to "live within your means" have been hammered home.

'While women are right to focus on making sure their debts are manageable, other sacrifices may need to be made to ensure retirement planning is in place.'

The Scottish Widows report also warned that women face being forced to work into their 70s because they cannot afford to stop.

It warns of ‘a disconnect between the age at which women would like to retire and when they believe they will realistically be able to’.

When asked when they would like to retire, the most popular choice was 60.

But with the state pension age being increased this is unlikely for millions of women who have no private or company pension. The state pension age is rising to 66 by 2020 and to 67 by 2028 and will continue to go up.

Lynn Graves, head of business development at Scottish Widows, said women are penalised by the fact that many stop work when they become mothers or switch to part-time work which may not offer a pension.

‘Important differences in lifestyle mean women often find it more difficult to save for the long-term and retirement,’ she said.

Many women said they were relying on their husband or partner to fund their retirement, but according to the report there is ‘little communication’ between the two on the subject.

Why are you likely to save more for the long-term over the next 12 months? (Source: Scottish Widows)

It warns of the dangers of this approach, particularly if the relationship collapses. Many women will be left with a poorer pension, or no pension, after they divorce.

The report has been issued as new rules, which came into operation on October 1, force bosses to pay into a pension for their workers for the first time.

The pensions revolution is designed to solve the problem, which particularly hurts women, of not building up a pension.

Over the next five years, up to 11million workers will be automatically signed up to a pension if they are between the age of 22 and state pension age and earn more than £8,105 a year.

HOW TO GET WOMEN SAVING MORE FOR OLD AGE

Scottish Widows suggests the following changes:

Merge pensions with savings products like Isas

Women and men are equally likely to hold Isas - but women who save in this way miss out on the benefits of pension tax relief.

Women are keen to save for a 'rainy day' meaning locking money into a
pension is not appealing but having access to savings for emergencies
would be.

This would suit the 'flux' that many women experience in their lives
such as having career breaks to bring up children. They could prioritise
saving for retirement when in work, and have access to funds when
needed.

'Pensions are a hot bed for jargon and confusion, making them
unattractive to the uninitiated, whereas Isas are a straightforward and
popular savings vehicle,' adds Scottish Widows.

Fairer sharing of pensions

The law on pensions and divorce is largely being ignored,
whether through ignorance or because those who have pension are failing to
disclose them to the other side, and this should tackled.

Scottish Widows said the government-backed Money Advice Serviceinformation about the options could
be greatly expanded and made available to both parties on divorce.

Consideration could be given to allowing hardship loans from pension
schemes, along the lines of loans available from 401(k) arrangements in
the U.S.

Employers should promote a positive pensions message

Employers are well placed not only to promote pension auto-enrolment but to
provide additional information about the retirement planning process –
which would be well received by the women surveyed.

When asked what financial guidance and education they would like to receive through their employer, 30 per cent of women said they would like access to face-to-face advice, 28 per cent wanted personal financial health checks and 24 per cent wanted information guides.

Scottish Widows suggests an increase in the tax-free allowance for
financial advice funded by employers as it may encourage more to offer
the service for staff.

Reach out to women who are not working

Unemployed women are not being targeted by government savings initiatives and are not prompted to save, but some of them could be building up a pension and other savings – perhaps using some of their partners’ incomes.

Current pension participation by men and women (Source: Scottish Widows)

Do you feel more or less financially
comfortable than twelve months ago? (Source: Scottish Widows)